Microsoft and Adobe Rumble in Vegas

With near-simultaneous announcements on Monday at the National Association of Broadcasters (NAB) trade show in Las Vegas, Microsoft (Nasdaq: MSFT) and Adobe (Nasdaq: ADBE) have started a turf war over the future of Internet video and next-generation rich Internet application (RIA) solutions.

On one hand, Microsoft announced Silverlight, which is a cross-platform browser plug-in designed to help Web sites deliver video and interactive applications. Silverlight competes squarely with Adobe's widely-used Flash format and architecture.

On the other hand, Adobe announced a new "Media Player" application for Windows and Mac OS X that will play Flash-based video streamed or stored locally with the application. Adobe's Media Player, which was only previewed at NAB, competes with Microsoft's own Windows Media Player.

"It's one of the most amazing things that they both announced on the same day because they are going right after each other's strengths and weaknesses," James McQuivey, an analyst and vice president of research for Forrester, told TechNewsWorld from the NAB show. "They are both saying interactivity is the future and they both want to be part of it."

Silverlight vs. Flash

Microsoft held an early lead in video file formats -- its .wmv format. By controlling the PC, Microsoft's chosen file format got the most use -- that is, until media companies and advertisers moved so much of their new content online, where they wanted to be able to post or stream content. Because the Flash browser plug-in is so small and easy to download and install, it's picked up steam with consumers and media producers alike. Today, the vast majority of video streamed online is Flash-based. The app is also used for the development of next-generation interactive applications, which is a place Microsoft, as a dominant application-focused software company, definitely wants to be.

However, Adobe makes money through its developer tools and media serving solutions, and because it's the dominant player, the company gets to charge a premium price.

"Because everybody has to use Adobe to be current with standards, Adobe is going to price its solutions like a monopolist," McQuivey explained. "Well, Microsoft, who knows a thing or two about monopolies, comes in and says, 'Well, we know how to beat that business. We'll go in, use a new technology, engineer it a little more progressively so it can be cheaper, and we're not going to try to make so much money on it -- we're going to sell it for less.' And it's a very appropriate strategy."

Adobe Media Player vs. Windows Media Player

McQuivey suspects that Adobe will eventually lower its prices to mitigate the Microsoft Silverlight threat, but that's not the only play in Adobe's book. The Adobe Media Player not only provides a handy way for consumers to view Flash-based video while offline, it targets media producers and advertisers, too. Because so many media producers and Web sites already develop rich applications and stream video via Flash, Adobe has a legitimate stake in delivering this kind of content offline through its own player.

"In this case, Adobe is clearly on the creation side and wasn't very good on the playing side," Rob Enderle, principal analyst for the Enderle Group, told TechNewsWorld. "The sustaining lesson is, if you are going to create media, you better be on the playing side, too, or someone can trump you."

If Microsoft succeeds with Silverlight, for example, existing Adobe customers could switch their development efforts to Silverlight-based solutions in order to take advantage of some future player, whether it's Windows Media Player or some other upstart.

While Adobe's Media Player move is necessary, it doesn't yet compete with Windows Media Player in the same head-to-head way that Silverlight takes on Flash.

"It's the download-and-carry feature that's so cool -- that you can take it with you," McQuivey said. "But Windows Media Player is designed to play many more formats -- to be a complete media center for audio, video, photos -- so it's much more of a consumer application. Adobe's Media Player is focused on supporting Flash-based experiences."

Advantage Microsoft?

Indeed, Enderle notes that Adobe's Media Player is really in "tenth place in a field of three." Adobe's new player has to compete not only with Windows Media Player, but also with Apple's (Nasdaq: AAPL) QuickTime and iTunes. "Adobe never should have let that player space go as long as they did," Enderle added.

However, Adobe may yet be able to convince users to download its Media Player, and the company will employ a similar strategy that led to the success of the Flash plug-in -- keep it simple and easy.

"It's sort of a Trojan Horse model," McQuivey explained. "They want it to be small now so that you download it. And then after you download it, in the future they can say, 'Hey, let's upgrade this thing,' and in that way gradually encroach on things like your iTunes experience."